BLUE OCEAN STRATEGY by KIM & MAUBORGNE

Known Market Space

Though Competition

Fighting for Market Share

High Profits

Unknown Market Spaces

Growth

Brand Equity

Examples

Cirque du Soleil

Ford Model T

Chrysler Minivan

CompaQ

CTR's Tabulating Machine

Apple personal computer

Nickelodeon

Cost Reduction
Omit the costly elements

Creation of a "New Market"

Thinking about opportunities instead of beating existing competitors

Create Added Value for the customer

No need to focus on technological innovation

Big Companies

Oligopoly

Avoid the unknown markets

Product Improvement

Innovate to Survive their competitors

Unspeculative

Patent a lot, but a short rate of top patents

Small Companies
Entrepreneurship

Explore unexisting markets

Innovate to create new market opportunities

Few patents / high rate of top patents

Look for revolutionnary breakthroughs

Innovation in all different kind of domains

High risks of imitation and reverse engineering
Why?

High costs of R&D

High risks of failure

Secure to enter a market that already exists

Position of oligarchy

Government

Passive contribution

Provide legal infrastructures

Protection for intellectual property

Avoid the interferences

Active contribution

Support the basic research (Ex Internet)

R&D on long term projects (Ex military research)

Research on domains that are not attractive enough for the Private Sector

Universities

Collaborate with Governments and Private Sector

Bring fresh and intuitive Point of View

Patent a lot to boost their image

Major New Product

Vague performance criteria

Process yet to be upgraded

Flexible Technical Approach

Dominant design not reached

Quick changes in th process

Market needs ill defined

Standardized Product

Large Unit Production

High volumes

Well defined market

Products well understood

Low unit profit margins

Production technology efficient

Changes are costly

Incremental innovations

Rate of Major Innovations

Process Innovations

Both tend to meet

Anticipation of the customers' demand

Leading companies stay close to the customers

Well-managed companies = ahead of their industry

Developing and commercializing new technologies

Imcremental improvements OR breakthroughs

Address the customers' needs

Implement processes to identify customers needs and forecast technolgical Trends

CURRENT markets and customers

Blind the comanies to important NEW EMERGING MARKETS

Example:IBM and minicomputers

DISRUPTIVE TECHNOLOGIES = Less advanced but more competitive and adapted to customers' value

Technological changes that revolutionize the market are usually

Not radically new

Not difficult from a technological point of view

Different package of performance attributes

Improving the performance attributes valued by customers

Technologies initially inferior (disruptive) become more adapted to customers' needs

Disruptive technologies can look financially unattractive to established companies

Why investing in something less elaborated than what we already offer?

Managers keep doing what has worked in the past / where the market is assured

Seagate = Leader in 5,25 inch drives

Decide not to invest in 3,5 inch drive as their clients (IBM mostly) are not interested

Former Seagate employees create their company CONNER PERIPHERALS

Specialized in 3,5 inch drives ("Inferior technology")

Emerging Market

Improve the 3,5 inch drives capacity

Become direct competitor to 5,25 drives with advantages

How to spot them and compete them?

Disruptive or sustaining technology?

Define the market strategy

Identify the disruptive technology's starting market and customers

Create your own disruptive and independant organization

Keep it independant to avoid the established companies' mistakes of only focusing on ASSURED markets

Uncertainty: about profitability / success which makes it more expensive to invest in innovative activities

Monopoly power and large size firms can reduce uncertainty by targetting profitable opportunities

Failure from the inventor

Moral hazard consists in forcing the inventor to carry more risks in the project to be more involved in its success

Solution 1: Collective financing to spread the risk

Solution 2: Accept departures from the conditions for perfect competiton = Enter a market oriented system

Situation 1: Anticipation of Monopoly Power

Ability to prevent or retard imitation by patents, trademarks or copyrights

Erection of barriers

Situation 2: Possession of Monopoly Power

Extend Monopoly to new products

Discrourage imitation

Ensure the profitability

Possible self-financement because borrowing leads to information disclosure

Ability of Hiring top innovative people

Additional leisure

Lack of motivation for new innovations

Slower to replace with superior products

The edges of large size company for innovation

Innovation is increasingly expensive

Researchers get more productive with more colleagues

Bigger pool of ideas

Better exploitation of the outputs from R&D

Technology-push

Firm innovates and push the idea on a non-existing market

Requires R&D investment / edge for large scale firms

Demand-push

New marketing opportunity and demand / innovation in response

Edge for large scale firms with better facilities to respond the opportunity

Are those theories correct?

Hard to say because

Hard to define innovation

Use patents stats

How to define the outputs in the process?

use number of workers assigned to R&D or Spendings in total

How to measure firm size?

How to measure monopoly power?

Conclusion
Neither perfect competition or perfect monopoly appear to be most conducive to technological advance